Meta-Trader - Sapaq Review

Welcome back Meta-Traders.

In this review we tackle Watukushay #7 also known as Sapaq. Sapaq is a word in Quechua (language of the people of the central Andes of South America) that means different. Sapaq is different from the other systems on Asirikuy in that it benefits from counter-trend price movements. Sapaq is a bit of a milestone in Asirkiuy in that its Daniel’s 10th system released in the year 2010.

In some ways, Sapaq is the Daniel’s answer to the Asian scalper’s phenomenon. Many systems including my old favorite Megadroid, and my current experiment FX-Regression trade during the Asian session simply because the price action typically retraces at least some portion of the prior European session. So a price spike in either direction can be faded with a better than even chance that the move will retrace and end up right back where it started.

Daniel tackles the issue in his own unique and unexpected fashion as follows. Sapaq is based on the observation that a trending day in the European session followed by a narrow range in the Asian session, which closes in the same direction, leads to a reversal in the following European session contrary to the direction of the prior 2 sessions. It sounds more complicated than it is, so take a look at the screen shot from Daniel’s video for a picture.

Another way to look at it is that the Forex market doesn’t do the same thing three sessions in a row. If session #1 was up and session #2 was up, session #3 is more likely to be down than up.

Since the action of the Asian session is a key part of the logic, the system works only on pairs which are not active during the Asian session. The system is therefore traded on EUR/USD, GBP/USD, USD/CHF and USD/CAD and doesn’t work on any of the pairs traded actively in the Asia session such as AUD NZD or JPY.

Trades are considered once per day at the pre-defined “Market Analysis Hour” which appears to be 7AM EST.

Once in a trade, the system uses a Take Profit and Stop Loss which is a fixed percentage of the ATR. Only one trade is allowed at a time. There is code in the system for a time-based exit of the position, but it is disabled in the recommended preset files.

I have to admit, when I first heard the logic, I was a bit skeptical that this system would amount to anything worth trading with real money. And in some ways the back test results confirm that for EUR/USD in that the system closes trades at a profit only about 30% of the time. As for the other pairs, the system is profitable 50% of the time on GBP/USD, 65% of the time on USD/CHF and nearly 70% of the time on USD/CAD using the recommended settings.

The Take Profits and Stop Losses are adjusted for each pair such that the size of a winning trade exceeds the size of the losing trade enough to make it a profitable proposition. For EUR/USD and GBP/USD, the size of a winning trade is just over 3 times the size of a losing trade. For the other pairs, it’s closer to 1 to 1 but still favoring larger winners than losers.

What about performance?

On a back-test with 1% risk, the drawdown exceeds the profit in all cases. In the case of USD/CAD and USD/CHF, the maximum drawdown is 3 times the average annual return. So this is clearly not one of Daniel’s best systems on a stand-alone basis.

Where this system shines is a portfolio basis. When I fire up the Asirikuy Profit and Loss Drawdown Analyzer (which is worth a review unto itself) and run the Sapaq portfolio from 2000 through 2010 with the recommended risk settings, the following numbers emerge:

• 100K grows to 640K over a 10-year period which is nearly an 18.5% annual return
• Maximum drawdown is close to 10%
• Overall reward to risk ratio goes to 1.67 indicating the system makes $1.67 for every dollar risked
• Overall winners to losers ratio goes to 0.75 indicating the system still loses more often that it wins, but it’s much closer to even that the individual back-tests suggest
• The system has long periods of drawdown, as long as a year without reaching a new equity high

This last item drives home the point that this system is difficult to trade psychologically. But that is common to most of Daniel’s systems in that they often have long periods of drawdown.

I’ve been trading Sapaq live for the past few months on EUR/USD and GBP/USD as part of my Atinalla #4 SM accounts. I started a new demo account about 2 weeks back with the (insert results) here.

Overall, Sapaq is not among the best of systems on Asirikuy, but it does add a much needed diversification of techniques aware from strictly trend following. Daniel showed in is “Atinalla #4 with Sapaq modifications” video, that adding Sapaq to a portfolio of other systems on Asirikuy greatly improve the performance while minimizing drawdown. In fact numbers were quite stunning in some cases tripling the Compound Annual Growth Rate to Maximum Drawdown ratio.

I’m going to monitor the Sapaq stand-alone portfolio through the remainder of 2011 and perhaps add a live account starting early in 2012.

Thanks for reading and have a great week.